Child benefit claimants paying higher tax than millionaires

The government has admitted that families will be left paying higher tax rates than millionaires because of the changes to the child benefit system.

Treasury minister David Gauke disclosed in a parliamentary answer that some families face tax rates between 53% and 73% on earnings over £50,000 depending on how many children they have, whilst figures also showed that a fifth of those earning between £1m and £5m a year paid tax rates of less than 40%.

The decision to reduce the amount of child benefit payable to higher earners, announced in the Budget, has caused the anomaly. Previously, the Chancellor had announced that any family where a single earner paid higher rate tax would lose the benefit.

This policy attracted widespread criticism for creating a ‘cliff edge’ where people lost their entire benefit if they earned just a pound above the threshold of about £43,000.

The new policy means that if a family has one earner who is paid over £50,000 but less than £60,000, he or she will have their child benefit gradually removed through their tax code. A family earning up to £98,000 would keep the benefit if neither partner broke the £50,000 barrier.

However, Mr Gauke published figures showing that a parent with one child, earning up to £60,000, would pay 53 pence in every pound they earned over £50,000.

For a parent on the same earnings with four children, the rate would be 73pc between £50,000 and £60,000. Child benefit will not be paid to individuals earning more than £60,000, even if their partner earns nothing.

Currently every family with children under 16 (and up to 18 if they are in full-time education) is eligible for Child Benefit no matter what they earn. Families with one child receive £20.30 a week, while those with more receive this amount for their eldest child and £13.40 a week for any other children.

Tax experts said that those within the £50,000 to £60,000 band could avoid losing the benefit by using salary sacrifice schemes such as childcare vouchers, which reduce income in favour of benefits in kind, or by paying extra into a pension, which is also taken out of pre-tax income.

A spokesman for the Treasury said: "The simplest way of introducing this taper is through an income tax charge for those earning between £50,000 and £60,000. The alternative would require means-testing of millions of families."